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# CVP formula to compute break-even

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The following are the monthly fixed expenses for Peyton Travel:

Office rent: \$3,000.00
Depreciation of office furniture 200.00
Utilities 110.00
Telephone 520.00
Reservation Service Fees 380.00
Travel Agent Salaries 1,400.00
Variable expenses include the following:
Travel Agent Commission 5.0% of sales
Supplies and Postage 1.0% of sales
Telephone and Reservation Service usage fees 3.0% of sales

Use the contribution margin ratio CVP formula to compute Peyton Travel's break-even sales in dollars. If the average sales price of a ticket is \$660.00; how many tickets must be sold to reach break-even?

Use the income statement equation [revenue - (variable expense + fixed expense) = operating income] to compute the dollar sales needed to earn a target monthly operating income of \$6,290.00. How many tickets is this if the average sales price of a ticket is \$660.00?

Assume the average sales price decreases to \$440.00 per ticket. Use the contribution margin approach to compute Peyton Travel's new break-even point in tickets sold. How does this compare to your answer in part a)?

#### Solution Preview

Fixed Costs
Rent 3,000
Depreciation 200
Utilities 110
Phone 520
Service Fees 380
Salaries 1,400
Total Fixed Costs 5,610

Variable Costs @ \$660 @440
Commission 5% 33 22